Once a law is implemented, it is a known fact that Notifications, Circulars and Orders issued subsequently forms part of the Act to amend or to clarify procedures or ambiguity. Notifications are considered as delegated legislature and are generally issued to give effect to a legal provision or rule, whereas Circulars are normally explanatory or clarificatory in nature. In this article, we will have an in-depth analysis on purpose of circular issued under GST law and their binding value on Assessee, department and courts.
Meaning and purpose of Circular
The word Circular has not been defined under GST law. Therefore, in the absence of the definition in the Act, in the general legal understanding, Circular is understand as an instruction or direction by an authority that aims to clarify the ambiguity. Hence a Circular could be issued for the purpose as specified in the Act to ensure the compliance of such purpose.
The Central Board of Indirect tax and Customs (herein referred to as CBIC) has been accorded the power under GST to issue orders, instructions and directions to the officers if it considers necessary for the purpose of uniformity in implementation of the Act and thereupon all such officers and all other persons employed in the implementation of this Act shall observe and follow such orders, instructions or directions in accordance with Section 168 of Central Goods and Service Tax 2017. The same power has been provided to Commissioner of the State under Section 168 of State GST Act.
Similar power was provided under Central Excise Act, 1944 for the purpose of uniformity in the classification of excisable goods or with respect to levy of duties of excise on such goods. Similar power was provided in Customs Act 1962.
By power given under section 168, we can understand that the Circulars are internal memos which are issued for proper implementation of Act and intended to clarify the ambiguities and provide procedures for implementation of Act.
Hon’ble Supreme Court in the case of Commissioner of Customs, Calcutta v. Indian Oil Corporation Ltd., (2004) 3 SCC 488 = 2004 (165) E.L.T. 257 (S.C.), culled out the following principles –
1. Binding Value of Circular to Department – This Court has, in a series of decisions, held that circulars issued under Section 119 of the Income Tax Act, 1961 and Section 37B of the Central Excise Act are binding on the Revenue. Provision itself has stated that officers or other persons employed in implementation of Act shall follow the circulars.
Hon’ble supreme Court opined that regardless of the interpretation that of the Court, if there are circulars which have been issued by the CBIC which place a different interpretation upon the said phrase, then that interpretation will be binding upon the Revenue, also held by Hon’ble Supreme Court (Constitutional Bench) in case of Collector of C. Ex., Vadodara v Dhiren Chemical Industries 2002 (139) E.L.T. 3 (S.C.)
2. Binding Value of Circular to Assessee – However the question arises, whether Circular is binding to the Assessee. Hon’ble Supreme Court has held that Circular is not binding on a Court or an Assessee. Hence, the Assessee is at discretion to follow the orders, instructions and directions if it stands beneficial. In case such circular is not beneficial, Assessee can choose not to follow them or challenge the issuance of the Circular.
3. Binding Value of Circular to Court – The Hon’ble Supreme Court in case of Bengal Iron Corporation and Anr. vs Commercial Tax Officer and Ores on 27 April 1993, 1993 AIR 2414, 1993 SCR (3) 433 suggests that quasi-judicial authorities shall be bound only by ‘law’, which does not include administrative instructions, opinions, clarifications and circulars. Adjudicatory Authorities are also afforded the flexibility to use their independent interpretations which may deviate from Departmental Circulars. Further, Judiciary cannot direct that a Circular shall be given effect to over any interpretation of Hon’ble Supreme Court or High Courts’ in the question of law.
4. Contrary stand by Department – Considering that the Circulars are binding on the Department, they shall not be permitted to take a stand contrary to the instructions issued by the Board. For Instance, Circular No. 48/22/2018 – GST dated 14th June 2018 states that services of short-term accommodation provided to SEZ unit would be treated as interstate supply. In case department acts against such circular to recover tax treating it as intrastate supply, such contrary stand could not hold good. Same view has been taken by Hon’ble Supreme Court in case of Collector of Central Excise vs Usha Martin Industries 1997 10 SCC 402.
5. Contrary show cause notice – A show cause notice and demand contrary to the Circulars already in existence are bad ab initio. Continuing with the example provided in point 4 above, Department cannot raise a demand by issuing a show cause notice on a contrary understanding of the Circular.
6. Contention by Department – It is not open to the Revenue to raise a contention contrary to a binding Circular by the Board. When a Circular remains in operation, the Revenue is bound by it and cannot be allowed to plead that it is not valid nor that it is contrary to the terms of the Statute.
7. Advance a contrary argument and file an appeal contrary to circular – It is not open to the Revenue to advance an argument or file an appeal contrary to the Circulars.
Similar reiteration of law can be found in a later judgment of the Hon’ble Supreme Court in Union of India and others v. Arviva Industries India Limited and others – (2014) 3 SCC 159 = 2007 (209) E.L.T. 5 (S.C.) = 2008 (10) S.T.R. 534 (S.C.).
Further understanding on Circulars:
1. Retrospective or prospective – To decide the issue whether Circulars are to be interpreted in a retrospective or prospective manner, it is worthy to analyse the ambiguity arose under GST on a similar issue wherein RCM liability has been extended in case of rent a cab service provided by unregistered person to a body corporate vide Notification 29/2019 dated 31st December 2019 which has not mentioned the date of applicability but Circular 130/2019 dated 31st December 2019 clarifies it would be retrospectively applicable from 01st October 2019. Such a case provided the additional liability retrospectively and added a cost by way of interest for 3 months.
It would be beyond the powers of board to provide additional liability for the previous period. Circulars should be issued only to clarify the ambiguity and not enhance the liability. In the case of Suchitra Components Ltd. Vs. Commissioner 2008(11) ST- R430(SC), Hon’ble Supreme Court held that a beneficial Circular must be applied retrospectively by the Assessee while oppressive circular must be applied prospectively. Thus, when the circular is against the Assessee, they have right to claim enforcement of the same prospectively.
2. Binding value of inconsistent Circular – In the case of Ranadey Micronutrients v. Collector of Central Excise (1996 (87) ELT 19) the Hon’ble Supreme Court held that “It does not lie in the mouth of the Revenue to repudiate a Circular issued by the Board on the basis that it is inconsistent with a statutory provision. (Consistency and discipline are, according to this Court, of far greater importance than the winning or losing of court proceedings”. Thus, even if the Circular is inconsistent with the provisions of law, the Department cannot say that it is not binding on them. The Assessee can context on the same as it is not binding on it.
3. Circular issued post issuance of show cause notice – This could be understood based on an instance, in case a show cause notice has been issued as to why should a specific rate not be charged and differential tax need not be deposited where there was ambiguity on classification. Post issuance of show cause notice and 1st hearing, a Circular is issued which leads to no additional payment of tax. In such a case, the Assessee can contest as Department has not reached the finality and the same is bound to take stand as taken in the Circular.
4. Circular creates ambiguity – Normally a circular clarifies certain things in law. But there could be instances where the Circular tends confuse the taxpayer even more by providing two or more understanding or opinion. In such case, the Assessee could take the that interpretation which is beneficial to them. In the case of M/s Poulose And Mathen vs Collector of Central Excise 1997 (90) E.L.T. 264 (S.C.), the Hon’ble Supreme Court held that “Where two opinions are possible, the assessee should be given the benefit of doubt and that opinion which is in its favour should be given effect to”.
Conclusion – CBIC/ Commissioner of State by way of Circulars issue instructions and directions to the Department which are binding on them. However, such Circulars tend to lose the binding force when applicable at the stance of Assessee or the Adjudicating Authority or the Court. Therefore, the Assessee is always at discretion to adopt the same to the extent it stands beneficial to them.
Special thanks to CA Anil Kumar Bezwada and Adv Surabhi Parihar for their valuable inputs.
The author could be reached at [email protected] for any feedback/suggestions.